NEW YORK, Dec 11 (Reuters) - The U.S. dollar fell broadly on Thursday, hitting seven-week lows against the euro and yen, as safe-haven demand faded and investors began booking year-end profits following months of steady dollar buying.
Data showing another weekly rise in the number of Americans filing for jobless benefits, this time to a 26-year high, also weighed on the dollar, boosting the case for the Federal Reserve to cut interest rates next week from an already low 1 percent. For full story, see [ID:nN11378229]
With trading conditions thinning ahead of year end, that pushed investors toward the euro, which carries interest rates of 2.5 percent, higher not only than U.S. rates but also those in Britain, Japan and Switzerland, where the central bank cut rates by half a percentage point to 0.5 percent on Thursday.
"The story has shifted this week to a greater focus on yield," said Boris Schlossberg, director of FX research at GFT Forex in New York. With the Swiss National Bank cutting rates on Thursday and the Fed seen cutting rates next week, "the euro is the only belle at the ball."
The euro hit a session peak of $1.3405 <EUR=>, its highest level in seven weeks, before easing to $1.3336. On the day, it rose 2.5 percent, its best daily gain since early November.
The euro also rose 1 percent to 88.87 pence <EURGBP=>, just off a record high of 89.08 pence, and 1.4 percent to 122.24 yen <EURJPY=>.
Implied rate spreads also moved in the euro's favor after European Central Bank Executive Board member Juergen Stark said late Wednesday the bank did not have a lot of room to maneuver on rates after lowering them to 2.5 percent last week.
On Thursday, Axel Weber, head of Germany's Bundesbank, also tried to cool further ECB rate cut expectations, telling a German newspaper "we should be careful when our interest rates enter territory never explored before." [ID:nLB692094]
ECB rates have never been lower than 2 percent.
Sterling rose 1.5 percent to $1.5004 <GBP=> while the dollar fell to 91.18 yen <JPY=>, a seven-week low and not far from its lowest level since 1995. It last traded down 0.9 percent at 91.75 yen.
RISK-AVERSION FADES - FOR NOW
Part of the reason for the dollar's swoon was also tied to a fall in the rates banks charge each other to borrow dollars, reflecting decreased demand for the currency, and a general rise in risk appetite.
The dollar's rally in recent months was mainly the result of investors unloading stocks, commodities and emerging market assets and putting the money into safer U.S. Treasury debt.
It also benefited as investors scrambled to buy the greenback to repay dollar-denominated loans.
In other asset markets, global stocks as measured by MSCI's all-country index have risen 2.1 percent so far in December, paring demand for the dollar as a safe haven.
"All the risk-related reasons to buy the dollar -- demand for dollar money market liquidity, exiting of emerging markets, and U.S. repatriation flows -- have eased," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greewnwich, Connecticut.
Also on Thursday, data showed the U.S. trade deficit widened unexpectedly in October, with imports from China rising to a new high. Some analysts say rising deficits could pose a problem for the dollar in the long run.
Analysts, however, said the dollar's current struggles were temporary and warned that the new year will likely bring a renewed wave of risk-aversion and deleveraging that renews safe-haven flows into the currency.
The euro's rise "is very much a temporary phenomenon," said Schlossberg. "The market is grossly over-optimistic about the eurozone economy's prospects. It will be very difficult for them to keep rates above 2 percent." (Additional reporting by Gertrude Chavez-Dreyfuss; editing by Chris Reese)
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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